Ground deformation is the direct manifestation of the earth-rock dam's hazard potential. Therefore, it is essential to monitor deformation for dam warning and security evaluation. The Liuduzhai Dam, a clay-core dam of a large reservoir in China, was reinforced with plastic concrete cut-off walls between 13 January 2009 and 29 May 2010, as it was subject to leakage and deformation. However, the deformation development and the mechanism of the dam are still unclear. In this study, the deformation fields before and after the reinforcement of the Liuduzhai Dam were yielded by using the Interferometric Synthetic Aperture Radar (InSAR) technique. Furthermore, a numerical simulation method was employed to obtain the dynamic seepage field of the dam during the InSAR observation period. The results indicated that the average deformation velocity and maximum deformation velocity are −11.7 mm/yr and −22.5 mm/yr, respectively, and the cumulative displacement exceeds 100 mm, which shows typical continuous growth characteristics in a time series. In contrast, the dam deformation tended to be stable after reinforcement, with the average deformation velocity and maximum deformation velocity being −0.4 mm/yr and −1.2 mm/yr, respectively, behaving as cyclical deformation time series. According to the results of InSAR and seepage analysis, it is shown that: (1) dynamic seepage was the main mechanism controlling dam deformation prior to reinforcement; (2) the concentrated load caused by construction and the rapid dissipation of pore water pressure caused by the sudden drop of the infiltration line were the reasons for the acceleration of deformation during and after construction; and (3) the plastic concrete cut-off walls effectively reduced the dynamic seepage field, while the water level fluctuations were the main driving factor of elastic deformation of the dam after reinforcement. This study provides a novel approach to investigating the deformation mechanism of earth-rock dams. Furthermore, it has been confirmed that InSAR can identify the seepage deformation of dams by detecting surface movements. It is recommended that InSAR deformation monitoring should be incorporated into future dam safety programs to provide detailed deformation signals. By analyzing the temporal and spatial characteristics of the deformation signal, we can identify areas where dam performance has degraded. This crucial information aids in conducting a comprehensive dam safety assessment.